Interview with Benoît Cœuré, Member of the Executive Board of the ECB and Chairman of the Committee on Payments and Market Infrastructures (CPMI), conducted by Cécile Sourbes on 10 May and published on 19 May 2016
What was the outcome of the questionnaires that the CPMI and the International Organization of Securities Commissions (Iosco) sent to central counterparties (CCPs) in 2015?
The work done by CPMI-Iosco is a response to the request made by the G20 ministers and governors to ensure that CCPs are safe and resilient. The work done on risk in CCPs has been set as a priority this year by the Chinese presidency of the G20. Risk in CCPs is an important piece, and maybe even the main missing piece, of the post-Pittsburgh regulatory agenda.
A great deal of work has been done to make the derivatives market safer, make central clearing mandatory and improve the resilience of infrastructures – in particular through the implementation of the CPMI-Iosco Principles for financial market infrastructures (PFMI). Now, it’s time to wrap it up, take stock of what has actually been done and consider whether this is enough or whether we need to do more. So it’s an important milestone.
To answer your question, yes, CPMI-Iosco sent a series of questionnaires to several CCPs last year which covered both recovery planning and risk management practices more generally. It was a way to assess their compliance with the PFMI and the recovery guidance released in 2014 by CPMI-Iosco. We have looked at the responses in depth and this has given us a good insight into how CCPs have implemented the PFMI. We are now taking stock of this material and we are also working with the Financial Stability Board (FSB). The outcome of this work will appear in two “twin” reports that will be published in early summer, presumably in July. Those reports will come right in time for the G20 summit in Hangzhou on 4 and 5 September.
Are there any areas that require further guidance?
The first report will review the implementation of the PFMI across 10 derivatives CCPs. We are very positive about the work that has been conducted by CCPs, but we’ve identified shortcomings when it comes to addressing certain topics, including financial resources and liquidity resources. We have also found a number of shortcomings in terms of recovery planning.
This is not about rewriting the PFMI – there is unanimity that the PFMI are the right approach as they stand. It’s about making sure that the PFMI are implemented fully and consistently across all jurisdictions. And the outcome of this work will show there is still more to be done.
This is why we will publish a second report, which will provide additional guidance to support the implementation of both the PFMI and the recovery guidelines released in 2014. There will be a public consultation process on this second report in order to gather input from the industry, and the final guidance will be published at a later stage, either late this year or in early 2017.
In terms of the PFMIs, what are the areas where further guidance is needed?
Governance, financial resources and stress testing are all included. We will also have further guidance on margining and, to some extent, on collateral management.
The report will be quite broad. It will send a positive message that the PFMI are being taken seriously by the clearing community, but it will also highlight a number of gaps that must be carefully examined.
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